United Nations Public Service Awards Case Studies

Austria’s public sector is comparatively large. General government revenues and expenditures as a percentage of GDP are well above the OECD average. Austria is a federalist country where regions and communities play an important role: The sub-central levels of government employ approximately two-thirds of the public workforce. The expenditure of the sub-central levels of government amounts to three-quarters of the federal level. The federal administration is characterized by large, centrally managed ministries, although during the past two decades a considerable number of administration entities were hived off and transformed into state-owned enterprises.
Up to recent times, budget formulation in Austria was very traditional, cash-based, highly legalistic and input-oriented. This led to growing dissatisfaction within the federal administration, as the weaknesses of this system became more and more obvious: there was no binding, medium-term perspective for budgeting, which created planning problems both for the Ministry of Finance (MoF) and the line ministries. The focus of budgeting prevailed on inputs and neglected performance results. As a monopoly of classic, cash-based cameralistics characterized public accounting, important financial information was not available for steering the budget adequately.
The Austrian federal budget used to be a result of financial requests from bottom-up. This way of budget planning proved to be unfeasible for saving financial resources: Regularly, line ministers did not comply with the budget rules and did not achieve their objectives for expenditures and budget deficits, as they did not have enough incentive to consolidate their budgets. Hence, the actual expenditures regularly exceeded the budget limits by 1.5 to 2 percent of GDP.

What is the initiative about? (the solution)
The most important changes in the early stage of the Budget Reform were the introduction of top-down budgeting (in the mid-1990s) and pilot projects to experiment with new forms of budget flexibility and performance information (starting in 2000). “Flexible agencies” (which remained part of the ministry and were not hived off) received a lump-sum appropriation per year, had the flexibility of virements within that lump sum and could carry forward most of the respective money if the financial results were better than planned. The results of these pilot projects were very encouraging: the administrative and budget culture in the respective administrative offices improved considerably and civil servants were much more motivated than before. Based on an amendment of the constitution and the budget law that was part of the 2007 reform package, the first stage of the Austrian Budget Reform was implemented in 2009. It consisted of two main elements: the introduction of a medium-term expenditure framework (MTEF); and more flexibility for line ministries. The MTEF contains legally binding expenditure ceilings for four years in advance on a rolling basis. The ceilings apply to groups of chapters (so-called “rubrics”). Each of the five rubrics has its own expenditure ceiling, which add to one ceiling for the federal budget. The five rubrics represent the following budget clusters: 1. Law and security 2. Employment, social services, health and family 3. Education, research, art and culture 4. Economic affairs, infrastructure and environment 5. Financial management and interest While the MoF is interested in enforcing restrictive expenditure ceilings and sticking to them even in difficult times, the line ministries do have their part of the deal: if they save money within the expenditure ceilings, they are allowed to build reserves (and use them in later years – even for different purposes). This “Every minister is his/her own finance minister”-approach proved to work as it combats “December fever” (complete spending of budget funds at the end of a year) and creates a major incentive for each line ministry to save money. The year 2009 was certainly an excellent year for a stress test for the new Austrian MTEF. The financial crisis and its consequences for budgets around the world created lots of uncertainties and pressure for additional expenditure from lots of lobbies. At the end of the fiscal year 2009, it turned out that the MoF successfully defended the budget discipline – as it will do in 2010, as the official budget forecasts show. Even more, it turned out that line ministries were clearly cautious about spending all their money and built considerable reserves, even in the difficult year of 2009. The MoF, on the other hand, will save interest payments, as the reserves are financed when they are used and not when they are built; the Budget Reform is starting to pay off. The second, even farer-reaching stage of the Budget Reform is now about to be fully implemented (see later).

Who proposed the solution, who implemented it and who were the stakeholders?
To integrate all relevant players into the reform process right from the start, a reform committee was formed as a platform for discussion. The committee was joined by experts, all political parties represented in Parliament, by the Court of Audit (CoA), the Chancellery and the MoF. While the MoF presented its ideas for the reform design, and later on, the detailed drafts for legislative amendments, the representatives of the parties discussed these suggestions and provided feedback to the MoF. This way, the political parties made sure that issues of particular relevance for them – such as the role and the rights of Parliament in the budget process – were designed according to their needs. The result of this committee’s work was a unanimous Act of Parliament in favour of the Reform. The CoA was an important contributor in the reform process. The MoF viewed itself and the CoA as “friends of the taxpayers” and ensured that the CoA was integrated in the informal parliamentary reform committee from the start and had the opportunity to add its perspective. Consequently, the CoA expressed its support for the reform in public and to Parliament, which was important in strengthening political acceptance of the reform. Furthermore, the MoF cooperated with the Chancellery: in return for their approval and promotion of the reform, the Chancellery was given a monitoring role in performance budgeting, and thereby enriched its portfolio. This new role for the Chancellery implies a monitoring of the outcomes and outputs, which are still defined by the line ministries. The Chancellery’s role is to monitor and support the methods, processes and results of outcomes and outputs. Another important contributor to the Budget Reform is the public. The main contributing groups were scientists, journalists and foreign multipliers. As far as the former were concerned, the MoF informed them (especially professors for public management and accounting) regarding the reform ideas, solicited feedback and integrated tips that fit into the general framework. Another important contribution to the Budget Reform came from the media: At one point, the reform process was at severe risk of grinding to a halt, and some newspapers published articles in favour of the reform. This helped put pressure on sceptics within Parliament and the administration. Foreign multipliers were another important contributing group. The aim was to use their experience for the Austrian Budget Reform. As the MoF actively participated in the OECD Working Party of Senior Budget Officials, this was an excellent opportunity to gain access to relevant foreign multipliers. In addition, international congresses and bilateral contacts were used to broaden the basis for respective communication. Last but not least, it was important to integrate feedback of the civil servants into the reform body. As a consequence, the MoF decided to rely on the huge expertise and experience of its administrative staff to design the reform. The basic assumption was that budget people know best how to effectively change fiscal rules.

Describe how and when the initiative was implemented by answering these questions
a. What were the strategies used to implement the initiative? In no more than 500 words, provide a summary of the main objectives and strategies of the initiative, how they were established and by whom.
The aim of the Austrian Budget Reform was a complete relaunch of the budget system. The Ministry of Finance (MoF) assumed that such far-reaching changes could not be managed in one step. Consequently, two major stages were envisaged: the first would be implemented in 2009 and the second was planned to come into force in 2013. Prior to that, pilot projects to test the “new world” (2011) and a parallel use of the old and new systems (2012) were foreseen. The solution was inspired by soccer: a “through ball” and then successful scoring. The MoF planned to change the constitution in a way that would make fundamental change inevitable by defining the core elements of the whole reform in the constitution. Backed strongly by the minister of finance and after intense discussions with the stakeholders mentioned above, two draft reform bills passed the Council of Ministers in early 2006: the amendment of the constitution, and a detailed reform bill for the first reform stage. However, parliamentary decision was not taken because the legislative period ended and the parliament was paralyzed in the wake of national elections. In 2007, the MoF tried again and was successful. Backed by the informal parliamentary reform committee and after several concessions to the opposition which changed details but not the design of the reform, Parliament passed both reform bills unanimously. This was a strong signal to the public and the administration that this change was to stay under any political constellation after future elections. Now the Austrian MoF could focus on working out the details for the second reform step starting in 2013. From 2008 until summer 2009, a complete new budget law was constructed. This was accompanied by discussions on all the reform aspects with line ministries, the Chancellery, the CoA, the informal parliamentary reform committee and the scientific community. Within the MoF, close co-operation between the Budget Department and the IT Department made sure that the technical design of the reform would be appropriate. In autumn 2009, the political bargaining on the reform law started. This was tough, as some line ministries tried to weaken the position of the MoF in planning and executing the budget. This resistance was overcome in a deal (see below) that was supported by the fact that an agreement had to be found because a new system had to be implemented according to the timeline in the constitution – the new budget process had to be operational on 1 January 2013. Intensive negotiations between the MoF and the Chancellery in autumn 2009 resulted in an agreement that safeguarded the reform design and provided the Chancellery with additional responsibilities. As the heads of the political parties in government (one headed the Chancellery, the other the MoF) had an agreement, all the line ministries had to accept it. After short but intensive negotiations between all parties represented in Parliament, a consensus was reached and the unanimous decision was taken on 11 December 2009.

b. What were the key development and implementation steps and the chronology? No more than 500 words
The Austrian Federal Budget Reform is based on an amendment of the constitution which was unanimously adopted in Parliament in December 2007. The key elements have been implemented in two stages. The first stage has taken effect in 2009. The cornerstone of the first stage is the introduction of a 4-year medium-term expenditure framework (MTEF) with binding ceilings enacted into law. In addition, incentives for line ministries for a more efficient use of resources have been created through more flexibility in building reserves and carrying forward appropriations from one year to another. The Annual Budget Law as the legal basis for the first stage has been adopted as well. The new budgetary principles adopted in the constitution build the basis for the 2nd stage of the reform (starting 2013). These principles are: Outcome orientation, efficiency, transparency and a true and fair view. Within the budget chapters, global budgets have been introduced instead of the current appropriation line items and thus, streamlining the budget. Instead of more than a thousand line items, the budget will consist of 70 global budgets. For a decentralized budget management, the legally binding global budgets will be further divided into detail budgets whereby the latter will only be binding within the public administration. The Budget Reform introduces a performance model which is based on the following elements: As far as the MTEF is concerned, the accompanying budget strategy report will refer to outcomes of the line ministries and the strategies to make them happen within the respective four-year period. In the annual budget bill, on the level of budget chapters, a brief mission statement and a maximum of five outcome objectives have to be defined and are part of the budget decision in Parliament. In the budget, each outcome has to be justified and explained very briefly, answering three questions: Why has this outcome been chosen? How will it be achieved? What is the benchmark for its success? On the level of global budgets, a maximum of five outputs has to be defined, which are part of the budget decision as well. Again, the three questions mentioned above are in place. On the level of detailed budgets and their responsible administrative units, a plan or a mandate integrating resources and performance objectives for the relevant administrative unit is obligatory. The plan covers four years in advance and is therefore congruent with the time horizon of the MTEF. An important aspect of performance budgeting in Austria concerns gender equality. In the constitutional amendment of 2007, gender budgeting was explicitly named as an obligatory dimension of performance budgeting. The constitution states that the budgets of all levels of government have to strive for the equality of women and men. Therefore the gender dimension has to be represented at all levels of the performance budgeting system: at least one outcome per chapter should deal with gender matters. The same applies for at least one output per global budget.

c. What were the main obstacles encountered? How were they overcome? No more than 500 words
Regarding the Austrian Parliament, a general political consensus and support by all political parties could be reached by a reform process that created a win-win-situation for the MoF and the political parties: on the one hand, the MoF could accomplish its reform; on the other, the political parties made sure that issues of particular relevance for them – such as the role and the rights of Parliament in the budget process – were designed according to their needs. Additionally, it was attractive for Parliament that the reform design of the MoF included detailed and regular performance information in the future annual budget bill. Therefore, Parliament’s portfolio was substantially enriched. Another obstacle to overcome was to reach an agreement with the Court of Audit (CoA). The CoA could get convinced to support the Reform by giving it the opportunity to add its perspective. As in the case of Parliament, the CoA benefited from additional levers and broadened its portfolio: the introduction of performance budgeting requires an institution to evaluate ex post, whether, and to what extent, the outcomes and outputs have been fulfilled. In addition, the CoA gained the right to receive additional reports from line ministries and the MoF, and must be consulted in diverse budgetary matters. The CoA, which already had a strong influence on public administration and politics, obtained more opportunities to act and express its views. As far as the line ministries were concerned, it was much harder gaining their approval for the reform. Traditionally, budget legislation guarantees the MoF a very strong role towards line ministries and the latter tried – basically without success – to change that in the course of the Budget Reform. As any draft of new legislation has to achieve unanimity within the Council of Ministers, the MoF had to lobby hard. Three factors finally helped to reach unanimity: ● The reform offered some advantages for the line ministries: more flexibility both in budget preparation and execution and the possibility to publicly present their efforts and work, with the introduction of performance budgeting. ● The fundamental decision to carry out the reform had been previously made on a constitutional basis in 2007 therefore, there was no way back (“the bridges were burned”). The line ministries realised that at the end of the day their potential for resistance was limited. ● The MoF made a deal with the Chancellery: in return for their approval and promotion of the reform, the Chancellery was given a monitoring role in performance budgeting, and thereby enriched its portfolio. This new role for the Chancellery implies a monitoring of the outcomes and outputs, which are still defined by the line ministries. Due to the Austrian Constitution, the Chancellor has no guiding role vis-à-vis ministers. This has not changed with the Austrian Budget Reform. Therefore, the Chancellery’s role is to monitor and support the methods, processes and results of outcomes and outputs, but it does not give orders to line ministers on their results.

d. What resources were used for the initiative and what were its key benefits? In no more than 500 words, specify what were the financial, technical and human resources’ costs associated with this initiative. Describe how resources were mobilized
The Ministry of Finance decided to rely on the huge expertise and experience of its administrative staff to design the reform. The basic assumption was that budget people know best how to effectively change fiscal rules. The reform driver was the Directorate-General of Budget and Public Finance. While a small number of young high potentials were hired to support the Director-General in steering the reform process, the whole staff of the Directorate-General helped design and implement the reform. Therefore there was no split of the staff between those who would do the routine budget work and those that would “construct the future”. The reform was derived from budgetary practice, from the experience of those, who, in many cases for decades, were used to steering budgets, recognising deficiencies, and knew effective ways to solve them quite well. Another important aspect with special regard to civil servants was to keep the involvement of consultants to a minimum. During the previous decade, consultants had been used often in the federal administration and the administrative staff was very sceptical. Civil servants had the impression that consultants would take the experience and ideas of the administrative staff and sell that to the government and earn lots of money. Additionally, the hiring of consultants was understood as a clear signal to the administrative staff that they would not be able to cope with the challenges ahead and would need advice from consultants who would teach them what they didn’t know. This created a strong defensive attitude among civil servants. Extensive use of consultants would have reduced the acceptance of the reform considerably. Consultants were – to a very limited extent – used in two sectors: in the development of the accrual accounting and budgeting system and in the information technology (IT) implementation of the reform. But the whole design of the reform model and most of the practical development of the numerous elements of the reform was carried out by Austria’s civil servants. This was much cheaper than the extensive use of consultants would have been.

Is the initiative sustainable and transferable?
As shown in the paragraphs above, the Austrian Budget Reform is the result of a broad national consensus, carried by all political parties and key stakeholders. The Reform has been built to last, and this common sense is mainly reflected in the fact that the Reform has been written into constitutional law, backed by a series of unanimous decisions of the Austrian Parliament. Even if the political constellations will change in the future, there is no way back: The Austrian Budget Reform has been one of the biggest political reforms in decades and is a fundamentally sustain model not only financially but also socially and politically, reached by thoughtfully involving the key players and stakeholders. The political cultures in the fellow member states of the United Nations might be different to the one of Austria, and these cultural specifics ought not to be ignored. A “copy & paste”-approach, imposing the Austrian Budget Reform on other political and cultural systems exactly as it is would probably be condemned to fail. However, the key elements of the Austrian Budget Reform can be transferred: A medium-term expenditure framework can do its job anywhere, performance budgeting can lead to more efficient governance and more effective outcomes in any country, as more flexible line ministries will spend their money in a more responsible way. An accrual accounting system will produce more transparent outcomes and a true and fair view of the public finances of any nation. Furthermore, any ground-breaking reform in any political and social culture will have to gain widespread support among its stakeholders. The Austrian Budget Reform can serve as a best practice example how to involve and convince the stakeholders and how to reach this national consensus necessary for a successful reform that does not lose its momentum while being carried out. Regarding the dissemination of the initiative throughout the public service at the Austrian national level, it has already been mentioned that the Budget Reform has been adopted by the federal level of the Austrian government, and not yet by the federal states or the municipalities. Technically however, the Reform could be put in place on these levels of government as well, and the Budget Directorate of the Ministry of Finance has been working on convincing the stakeholders of the federal states and the municipalities to jump on board and to introduce the new system of the Federal Budget Reform. On the international level, the Reform has been drawing a lot of attention: Several countries have taken interest in the content and the implementation strategies of the Austrian Budget Reform, on the one hand by sending delegations to the MoF, on the other hand by requests and invitations to present the Reform in their respective homelands. In addition, the Economic Policy Committee (EPC) regards Austria alongside Sweden and the Netherlands as a European best practice example for sound fiscal rules.

What are the impact of your initiative and the lessons learned?
In December 2007 and December 2009, Austria’s Federal Parliament decided on a far-reaching, comprehensive budget reform package. The introduction of a medium-term expenditure framework with legally binding expenditure ceilings, of accrual budgeting and accounting and of performance budgeting marks a decisive change, not only in steering the budget, but even more so in the Austrian administrative and political culture. The 1st stage of the Austrian Budget Reform, which has been put in place on January 1st 2009 has strikingly strengthened the budget discipline of the federal government right from the start of its implementation. The medium-term expenditure framework has been successfully holding down the public deficits to relatively low levels in 2009 and 2010, at a time when the public budgets got hit severely be the recession following the global financial crises. Moreover, the Budget Reform has sparked a cultural change within the line ministries of the federal administration: Instead of spending all their money at the dawn of each year, they have used to opportunity to build reserves and use their means to reach their goals in the future – the infamous “December fever” has been healed. The crucial lesson to be learned however is the uttermost need for a thoughtful change management that incorporates the stakeholders of such a reform, overcomes their second thoughts and resistance and benefits from their feedback. The fact that a broad consensus is the basis of an irreversible reform process and thus the key to a successful improvement of the delivery of public services and sound public finances cannot be overestimated.


Institution Name:		Austrian Federal Ministry of Finance (Bundesministerium für Finanzen)
Institution Type:		Government Department
Contact Person:		Gerhard Steger
Title:		Director General Budget Directorate
Telephone/ Fax:		+43 1 51433 502005
Institution's / Project's Website:
E-mail:		gerhard.steger@bmf.gv.at
Address:		Hintere Zollamtsstraße 2b
Postal Code:		1030
City:		Vienna
State/Province:
Country:		Austria

The Problem

Solution and Key Benefits

Actors and Stakeholders

(a) Strategies

(b) Implementation

(c) Overcoming Obstacles

(d) Use of Resources

Sustainability and Transferability

Lessons Learned

Contact Information